Inheritance tax is due on the value of the estate of a person who has died. It’s best not to try to avoid this step. That’s because the probate office will not agree to the distribution account without seeing an inheritance tax receipt.
However, there may be a workaround if the estate is worth less than £325,000. Moreover, if it is worth more the extra may still not incur tax if:
# It is paid to a spouse, civil partner, charity, or community amateur sports club
# The deceased donated their home to a child or grandchild before they died
# Their late partner or civil partner had an unused tax threshold that applies
HM Revenue and Customs (HMRC) levies tax on relevant property, namely money, shares, houses, land, and assets in most trusts.
Who Do You Pay and How Much?
The rate of inheritance tax is 40%. This is why it pays to explore the legal workarounds we mentioned. We can’t recommend an executor tries to dodge it though. That’s because they could be personally liable if the tax office finds out.
The 40% only applies to the amount above the £325,000 threshold. We are not tax advisors. However, we mention there may be other, proactive things you could do now, to legally reduce the inheritance tax due on your estate when you die.
UK Inheritance Tax – The Critical Dates
Any tax due must be paid by the end of the sixth month after the person died, in the case of a last will and testament. HMRC will charge interest after that date.
However, if a person transferred some or all of their assets to a trust while they are alive then tax may apply at that point. It may also be due:
# Each time a trust reaches a tenth anniversary
# When assets transfer out of a trust
# When a trust administers a deceased estate
How to Settle a UK Inheritance Tax Bill
# Obtain a payment reference number from HMRC at least three weeks before the payment date
# Payments may be from an individual or joint account. They may occur online, by telephone, BACS, CHAPs, at a bank or building society, or by cheque through the post according to The Express
The executor is often in a double bind here, because they cannot access funds from the estate without a probate, and the probate office will not give permission without an HMRC receipt. There are three ways an executor may break this deadlock:
# Ask the deceased’s bank to pay the inheritance tax directly if there is enough cash in the account.
# Ask one of more heirs to pay the inheritance tax out of their expectation of what they might inherit.
# Pay from own pocket or take a loan from a bank. In both these instances the estate can refund the amount
Being an executor of a deceased estate is seldom an easy walk in a park. We recommend you think carefully before accepting the role out of a sense of responsibility, or due to family pressure.